In drafting restrictive covenants, companies often seek the certainty of a “no fly zone” type of restriction on former employees or business partners. Such an arrangement goes further than a traditional non-solicitation provision because they prevent the restricted party from accepting business from certain customers, not just a restriction on reaching out to solicit that business. “No fly zones” are seen as advantageous compared to traditional non-solicitation clauses because they avoid the subjectivity of determining whether certain business can be traced to a solicitation. However, in a recent order, a federal district court in Massachusetts ruled that a “no fly zone” restriction could be unenforceable under Massachusetts law because the restrictions were not reasonable.
The action arose from the termination of a multi-level-marketing contract under which plaintiffs sold defendants’ jewelry. Plaintiffs sought a declaration that the “non-solicitation” provision of the agreement is unenforceable. Under familiar Massachusetts law, a non-solicitation provision is enforceable only if it is “necessary to protect a legitimate business interest, reasonably limited in time and space, and consistent with the public interest.” See 178 Lowell Street Operating Co., LLC v. Nichols, 152 F. Supp. 3d 47, 54 (D. Mass. 2016). The plaintiffs argued that a provision that went beyond prohibiting solicitation and restricted them from accepting business from certain customers was unreasonably broad in scope, and therefore does not protect a legitimate business interest. The plaintiffs argued that the provision effectively forced certain distributors to remain in business with the defendant.
The court held that the non-solicitation provision “may be unenforceable to the extent that it restricts plaintiffs from accepting business that they did not solicit.” Citing Corporate Technologies, Inc. v. Harnett, 943 F. Supp. 2d 233, 238–39 (D. Mass. 2013), the district court ruled that “[a] non-solicitation agreement does not prevent a company from receiving business initiated by the client with no direct or indirect participation by the individual employee bound by the non-solicitation agreement. To hold otherwise would bind third parties to agreements they did not sign or agree to.” In analyzing the contract, the court found that the language of the non-solicitation provision runs “directly afoul of the proposition stated in Harnett” by limiting the freedom of non-contracting third parties to approach plaintiffs. On a motion to dismiss standard, the district court ruled the plaintiffs’ amended complaint plausibly stated a claim that the non-solicitation clause was not enforceable.
[Thanks to Jennifer McDonald for her contribution to this post]
Gertz. v. Vantel Int’l/Pearls in the Oyster, Inc., Memorandum and Order on Defendants’ Motion to Dismiss, No. 19-12036-FDS (D. Mass. July 14, 2020)